Do Members of a Company Limited by Guarantee Have Personal Liability in Case of Liquidation in Australia?

Question from Dan, Do Members of a Company Limited by Guarantee Have Personal Liability in Case of Liquidation in Australia?

Answer from AI:

In Australia, a company limited by guarantee is a type of public company designed for non-profit organisations. The members of such a company are not required to buy any shares in the company, but instead, they guarantee to pay a certain amount of money if the company is wound up. This amount is specified in the company’s constitution.

Members’ Liability in a Company Limited by Guarantee

Under the Corporations Act 2001 (Cth), the liability of the members of a company limited by guarantee is limited to the amount they have agreed to contribute to the company’s assets if it is wound up. This amount is usually nominal and is specified in the company’s constitution.

In the case of the Collingwood Soccer Club, if the company is put into liquidation, the two individuals as members would only be liable up to the amount they have guaranteed in the company’s constitution. They would not be personally liable for the company’s debts beyond this amount.

Exceptions to Limited Liability

There are, however, exceptions to this rule. Members could potentially be held personally liable if they have breached their duties as directors or if they have provided personal guarantees for the company’s debts.

• Breach of Directors’ Duties: If the members are also directors of the company and they have breached their duties under the Corporations Act, they could be held personally liable. This could include, for example, trading while insolvent or failing to prevent the company from incurring debts when they knew or should have known that the company was insolvent.
• Personal Guarantees: If the members have provided personal guarantees for the company’s debts, they could be held personally liable for those debts if the company is unable to pay.

Seeking Legal Advice

If the two individuals are concerned about their potential liability, they should seek legal advice. A lawyer can review the company’s constitution and any other relevant documents to determine the extent of their liability. They can also advise on any potential breaches of directors’ duties or personal guarantees that could result in personal liability.

Remember, this information is a general guide and not a substitute for professional legal advice. Always consult with a legal professional for personalized advice.